Saudi Aramco, Sumitomo Chemical waive $1bn debt for Petro Rabigh
Aramco and Sumitomo Chemical have each agreed to waive $500 million in revolving shareholder loans and any associated commissions
Debt waiver is part of broader turnaround strategy to enhance Petro Rabigh’s profitability, balance sheet, and liquidity
Updated 29 August 2024
Reem Walid
RIYADH: Saudi oil giant Rabigh Refining and Petrochemical Co., known as Petro Rabigh, has had $1 billion in debt waived by its two largest shareholders as part of its refinery upgrade plans.
According to a statement on Tadawul, Saudi Arabia’s Aramco and Japan’s Sumitomo Chemical Co. have each agreed to waive $500 million in revolving shareholder loans and any associated commissions.
RSLs are loans from shareholders that can be drawn upon and repaid multiple times within a set period, typically used to support operations, finance projects, or address short-term cash flow needs.
This debt waiver is part of a broader turnaround strategy aimed at enhancing Petro Rabigh’s profitability, balance sheet, and liquidity.
The move aligns with Aramco’s plans to expand its downstream operations and Sumitomo Chemical’s transition from commodity to specialty chemicals.
Earlier in August, Aramco announced it would acquire an additional 22.5 percent stake in Petro Rabigh from Sumitomo Chemical for $702 million. This acquisition, priced at SR7 per share, is expected to make Aramco the majority shareholder with approximately 60 percent of the stake, reducing Sumitomo Chemical’s share to 15 percent.
The filing revealed that these agreements are related-party transactions, with Aramco and Sumitomo Chemical each owning 37.5 percent of Petro Rabigh. The debt waiver is anticipated to positively impact the company’s financial position, which will be detailed in a future announcement.
When the initial acquisition announcement was made, Sumitomo Chemical indicated it would reinvest the proceeds into Petro Rabigh, while Aramco pledged additional funding to match Sumitomo Chemical’s $702 million. The combined funding is set to reach $1.4 billion. Additionally, both companies agreed to phased loan waivers totaling $750 million each, resulting in a $1.5 billion reduction in Petro Rabigh’s liabilities.
Standard & Poor’s affirms Kingdom’s ‘A/A-1’ credit rating, outlook revised to ‘Positive’
Updated 8 sec ago
Arab News
RIYADH: Standard & Poor’s (S&P) affirmed the Kingdom’s credit rating in local and foreign currency at “A/A-1” with an improvement in outlook from “stable” to “positive,” according to its recently issued report.
S&P explained that its affirmation of the Kingdom’s strong credit rating results from the Kingdom’s continued efforts in comprehensive reforms and investments, which will contribute to supporting the development of the non-oil economy and the sustainability of public finances, state news agency SPA reported on Saturday.
S&P indicated its expectation of increasing growth in the non-oil sector in the Kingdom in the medium term as a result of its continued implementation of the initiatives of Saudi Vision 2030, with the prioritization of accelerating major infrastructure projects with the aim of easing pressure on public finances.
S&P expected that the Kingdom’s gross domestic product will continue to grow during the years 2024-2027, based on the remarkable growth in investments in the non-oil sector, the rise in consumption rates, and its expectation that the Kingdom will emerge in the long term as a more diversified economy, with more job opportunities for young people and broader workforce participation.
“We project stronger growth averaging 4.3 percent over 2025-2027,” S&P said in its report.
However, the ratings agency cautioned execution risks could arise from a sharper fall in oil prices and volumes and the ensuing impact on public finances, tight supply, skills shortages, and developing basic infrastructure like housing.
Saudi banks’ aggregate profit reaches an all-time high of $2.1bn; loans hit $744.4bn
Updated 13 September 2024
Dayan Abou Tine
RIYADH: Saudi banks aggregate profit before zakat and tax reached an all time high of SR7.83 billion ($2.1 billion) in July, marking an annual 23 percent rise, newly released data has revealed.
According to the Kingdom’s central bank, also known as SAMA, from January to the end of July the financial institutions reported total profits of SR50.22 billion, up 13 percent from SR44.5 billion during the same period last year.
Total deposits grew by 8 percent during this period, reaching SR2.64 trillion, with term deposits experiencing the highest growth at 20 percent, totaling SR930.24 billion.
Demand accounts, which make up 53 percent of total deposits, saw a more modest increase of 5 percent, bringing the total to SR1.4 trillion.
On the asset side, total bank credit rose to SR2.79 trillion, marking a 12 percent increase in July compared to the same month of 2023.
The loans-to-deposits ratio, a key metric for assessing a bank’s liquidity, climbed to 80.73 percent, up from 78.84 percent a year earlier.
The expansion of Saudi Arabia’s banking sector is being driven by a combination of favorable economic conditions and strategic initiatives.
High oil prices, coupled with continued government spending, have created a robust operating environment for banks, enabling them to support the Kingdom’s ambitious giga-projects and the broader Vision 2030 strategy.
This economic backdrop has also contributed to solid non-oil GDP growth, further bolstering the banking industry’s performance.
In addition to these traditional growth drivers, the rise of fintech is playing a transformative role in reshaping the sector’s landscape.
SAMA has been pivotal in regulating this sector, ensuring that innovation thrives within a secure and well-governed framework.
By implementing initiatives such as the open banking framework and supporting fintech companies through its regulatory sandbox, SAMA is driving technological advancements that enhance efficiency, improve consumer experience, and expand financial inclusion.
High interest rates in the Kingdom have further boosted profits on loans, as banks benefit from the increased interest income.
However, this environment has also intensified competition among financial institutions for financing opportunities, as they vie to attract borrowers and secure their market share.
McKinsey’s research on the Saudi banking sector revealed that the those institutions distinguishing themselves are those increasingly focused on meeting the high expectations of young, tech-savvy consumers — a strategy that offers a significant competitive advantage.
The research underscores a strong link between positive customer experiences and improved financial performance, demonstrated by higher cross-sell and retention rates.
To capitalize on this trend, GCC banks are fully digitizing their customer journeys, transforming every step from the initial touchpoint to successful fulfillment.
In the UAE and Saudi Arabia, several banks are reimagining both retail services, such as onboarding, personal loans, credit cards, and home financing, and corporate services, including MSME and midsize corporate onboarding and credit renewals.
Beyond revamping these journeys, GCC banks are also leveraging generative AI and other advanced technologies to enhance customer self-service capabilities, reduce reliance on assisted service channels, and automate issue resolution, thereby further improving customer satisfaction and operational efficiency.
MENA private equity deals reach $5.9bn in H1, despite challenging conditions: PitchBook
Data highlights the impact of the “worst market conditions in the past two years”
Market heavily impacted by geopolitical conflicts, fluctuating oil prices
Updated 13 September 2024
Nour El-Shaeri
RIYADH: Private equity investments in the Middle East and North Africa reached $5.9 billion across 49 deals in the first half of 2024, despite challenging market conditions, according to a new report.
The figures reflect a slowdown in deal activity compared to 2023, when $15.4 billion was deployed across 159 deals for the entire year, raising concerns about whether activity will rebound in the second half of 2024, according to the latest report by PitchBook.
Private equity refers to investment funds that acquire ownership in mature companies, typically through buyouts, aiming to improve performance, restructure operations, or expand before eventually selling for profit.
The data highlights the impact of what it describes as the “worst market conditions in the past two years” on private equity dealmaking in the region.
In comparison with the last decade, where deal values surpassed $10 billion in five out of 10 years, the first half of 2024 represents a significant drop.
Historically, MENA private equity activity has often been driven by a few large, multibillion-dollar deals, and a similar pattern would be required in the second half of the year to match 2023’s performance.
The report revealed that Saudi Arabia’s Public Investment Fund was the most active investor since 2018, reportedly investing in 36 deals.
The Emirate’s Abu Dhabi Developmental Holding Co., also known as ADQ, came in second with 20 deals, followed by Jordan’s Al Arabi Investment Group with 19 transactions.
Market conditions this year have been heavily impacted by a combination of geopolitical conflicts, fluctuating oil prices, and the threat of trade sanctions.
The ongoing conflict between Israel and Gaza has not only caused immense humanitarian suffering but has also destabilized economies across the region.
“The risk of escalation or a lengthy conflict creates difficult circumstances for economies. Alongside the humanitarian impacts, conflicts lead to substantial economic losses with potential spillovers to neighboring countries,” the report stated.
Compounding these challenges are disruptions in trade and oil production. Earlier this year, attacks on ships in the Red Sea prompted shifts in trade routes and contributed to a reduction in oil output, amplifying volatility in oil prices — a key factor for MENA economies
As energy exports represent a significant portion of revenue for many countries in the region, any reduction in oil production heightens fiscal pressures and affects broader economic stability, the report explained.
These market headwinds are making it increasingly difficult for private equity investments to gain traction, as businesses navigate both operational risks and broader economic uncertainty.
Saudi Arabia’s sovereign wealth fund has been an active investor in across the MENA region. File
PE digest
A significant private equity deal in the first half of 2024 was CVC Capital Partners’ $3.3 billion sale of GEMS Education to Brookfield.
GEMS Education, a Dubai-based private school provider with over 60 years of operation, is expected to welcome more than 140,000 students across 46 schools in the UAE and Qatar by September.
“Education has been a key consideration in MENA, and attempts to improve it have been a priority. Initiatives including strengthening education funds, revamping programs, focusing on STEM (science, technology, engineering, and mathematics) skills, and the implementation of virtual education due to the COVID-19 pandemic have been part of the plans,” the report said.
The healthcare sector in the MENA region is poised for significant growth in the coming years, driven by increasing demand and substantial investments.
A major deal this year was Gulf Islamic Investments’ $164.6 million investment in Saudi-based health care provider Abeer Group.
As part of its Vision 2030, the Kingdom plans to invest over $65 billion in healthcare infrastructure, with projects including 20,000 new hospital beds and 224 health care centers valued at $12.8 billion.
GEMS Education is a Dubai-based private school provider with over 60 years of operation. Supplied
The UAE is also advancing healthcare development, with approximately 700 projects worth a combined $60.9 billion, largely driven by the private sector. Public-private partnerships are expected to play a key role in the sector’s growth.
Qatar has introduced a PPP law to encourage international investment, while Oman has initiated its first medical city through the same arrangement.
Additionally, mandatory health insurance policies are becoming increasingly common across the Gulf Cooperation Council, leading to higher patient numbers.
“Strong demand for healthcare fueled by increasing and aging populations in the MENA region is anticipated to drive up government and private investor spending in the sector. A large pipeline of projects as well as new technologies will create opportunities for startups, portfolio companies, and investors,” the report added.
MENA exits
Private equity and venture capital-backed exit activity saw a sharp decline in the first half of 2024, with only $1.6 billion generated from 25 exits.
This marks a significant drop compared to the previous four years, where annual exit values consistently surpassed $10 billion.
The report stated that the current figures underscore a notable slowdown in exit activity within the MENA region, reflecting broader global trends in 2024.
Investors and management teams have been hesitant to pursue exits amid market volatility, influenced by fluctuations in public markets, inflationary pressures, and rising interest rates, which have dampened growth prospects.
With interest rate hikes largely on pause and potential rate cuts expected in Europe and the US later this year, there is cautious optimism for a recovery in the second half of the year.
The easing of monetary policy could help stabilize market conditions and create more favorable opportunities for exits.
VC’s role in PE
The MENA venture capital ecosystem experienced weaker capital deployment in the first half of the year, mirroring global trends.
A total of $1.3 billion was invested across 321 VC rounds, putting the region on track to fall short of 2023 levels by year-end.
This follows a decline in 2023, when activity in the sector dropped from a peak of $5.5 billion across 894 deals in 2022.
“The MENA region has been earmarked for high growth and untapped opportunities, but it has not been insulated from the broader slump in activity felt by more mature ecosystems,” the report said.
Sluggish economic growth, geopolitical tensions, and inflationary pressures have dampened market confidence, contributing to the overall slowdown in VC activity.
Oil Updates – crude extends recovery to cap volatile week
Updated 13 September 2024
Reuters
NEW YORK/SINGAPORE: Oil prices rose on Friday, extending a rally sparked by output disruptions in the US Gulf of Mexico, where Hurricane Francine forced producers to evacuate platforms before it hit the coast of Louisiana.
Brent crude futures rose by 34 cents, or 0.5 percent, to $72.31 per barrel by 6:22 a.m. Saudi time. US West Texas Intermediate crude futures rose by 39 cents, or 0.6 percent, to $69.36 a barrel.
If those gains hold, both benchmarks will break a streak of weekly declines, despite a rough start that saw Brent crude dip below $70 a barrel on Tuesday for the first time since late 2021. At current levels, Brent is set for a weekly increase of about 1.7 percent, and WTI is set to gain over 2 percent.
“A previous dip to an almost three-year low called for some near-term breather to end the week, as market participants price (in) for the disruptions to short-term oil supplies caused by Hurricane Francine,” said IG market strategist Yeap Jun Rong in an email.
Oil producers assessed damage and conducted safety checks on Thursday as they prepared to resume operations in the US Gulf of Mexico, as estimates emerged of the loss of supply from Francine.
UBS analysts forecast output in the region in September will fall by 50,000 barrels-per-day month over month, while FGE analysts estimated a 60,000 bpd drop to 1.69 million bpd.
Official data showed nearly 42 percent of the region’s oil output was shut-in as of Thursday.
“But if production delays were to prove to be short-lived and damages to oil platforms were to be minimal, those gains may be unwound, as the broader demand outlook continues to serve as a key headwind to limit any sustained recovery,” Yeap said.
Demand expectations remained dismal as both OPEC and the International Energy Agency this week lowered their demand growth forecasts, citing economic struggles in China, the world’s largest oil importer.
“The recent run of weaker Chinese economic data suggests that oil demand in the world’s second-largest economy may remain subdued for longer, while demand has been soft in other countries outside of China as well,” said IG’s Yeap.
China’s crude oil imports averaged 3.1 percent lower this year from January through August compared to the same period last year, customs data showed on Tuesday.
“Flagging domestic oil demand in China has become a hot topic and was further underlined by disappointing August trade data,” FGE analysts said in a note to clients.
Demand concerns have grown in the US as well. US gasoline and distillate futures traded at multi-year lows this week, as analysts highlighted weaker-than-expected demand in the top petroleum consuming country.
US oil and fuel stocks rose last week as demand declined sharply, data from the US Energy Information Administration showed on Wednesday.
IMF board to discuss Pakistan’s $7 bln bailout on Sept 25 as PM hails friendly states for support
The South Asian country reached a staff-level agreement with the global lender in July, but approval for the 37-month program has been pending since then
Pakistan’s last $3 billion IMF program helped avert a sovereign default last year, amid a decline in foreign exchange reserves and local currency devaluation
ISLAMABAD: The International Monetary Fund (IMF) executive board will meet on September 25 to discuss a $7 billion program agreed with Pakistan this year, an IMF spokesperson said on Thursday, as Prime Minister Shehbaz Sharif appreciated “friendly” countries for their support in meeting the lender’s requirements.
The South Asian country reached a staff-level agreement with the global lender in July, but the IMF board’s approval for the 37-month program has been pending since then.
Pakistan’s last $3 billion IMF program helped avert a sovereign default last year, amid a decline in foreign exchange reserves to critical levels, currency devaluation and record inflation.
“The board meeting is scheduled to take place on September 25 and this is following Pakistan obtaining necessary financing assurances from its development partners,” IMF spokesperson Julie Kozack said in a press briefing.
The development came hours after Prime Minister Shehbaz Sharif appreciated “friendly” countries for helping Pakistan meet requirements necessary to secure the IMF bailout.
“I’d like to say that our friendly and brotherly countries have supported us and have come all the way,” Sharif said on Thursday, while addressing a federal cabinet meeting.
The premier avoided delving into details and said the incumbent government was focusing on the commitments made with the IMF.
“For now, it would be fine to say that the finance minister, other government institutions and our ambassador in China have worked hard together for this,” he said.
Islamabad has for years relied on China, Saudi Arabia and the United Arab Emirates for financial assistance to meet external financing requirements and avoid sovereign default, which it came close to last summer.
Pakistan’s sovereign dollar bonds rallied on Thursday afternoon, with the 2031 maturity trading 1 cent higher to bid at 79.93 cents on the dollar, according to Tradeweb data.
Sharif said Pakistan’s economy would greatly benefit if the monetary policy rate also reached single digits like the inflation rate, highlighting that the dialogue with the IMF was moving ahead in a “good manner.”
PM Sharif said Pakistan will take decisions regarding the growth rate once the program is finalized.
Pakistan has been struggling with boom-and-bust cycles for decades, leading to 22 IMF bailouts since 1958. The latest economic crisis has been the most prolonged and has seen the highest-ever levels of inflation, pushing the country to the brink of a sovereign default last summer before an IMF bailout.
The conditions of the fresh IMF bailout have become tougher such as higher taxes on farm incomes and electricity prices. The bailout is aimed at cementing stability and inclusive growth in the crisis-plagued South Asian country.
